The automobile, or car, was invented in 1885 by Karl Friedrich Benz, a German engineer. But it was Henry Ford, an American, who made the automobile popular by mass-producing it on the world's first moving automotive assembly line in Detroit, which became the "Automobile Capital of the World" by 1910.

The term "car" covers a wide variety of vehicles from "micro-city" cars to full sized body on frame pickup trucks. For many they have become essential transportation. As an expensive status symbol they are widely customizable.

The Recession of 2008, extending into 2009, plunged the auto industry into chaos. General Motors, long the dominant factor worldwide, lost tens of billions and entered bankruptcy in June 2009, as did Chrysler. This led to government take overs of GM and Chrysler, but not Ford. In the U.S. from 1970 to 2001, there were 760 cars and light trucks sold per 1000 drivers; in 2009 sales dropped to 400 per driver, and hundreds of factories and thousands of dealerships closed down, with hundreds of thousands of employees laid off. The Japanese and European auto makers all lost billions of dollars, but none went bankrupt.

Effect on societies

The automobile industry forced nations, starting with the United States, to develop good streets and roads. In the U.S. especially the industry created a vast network of new and used car dealers, repair shops, and gas stations, not to mention GPS devices, motels, drive-through windows, shopping malls, and many businesses catering to customers in autos. The auto gave consumers a much wider geographical range, leading to the decline of isolated rural stores and the rise of small cities as regional market centers. Automobiles enabled employees to commute to work without reference to buses, trolleys or trains, opening up the suburbs to settlement after 1945.

However, increased automobile use also added pollution to the air, led to a rise in injuries and fatalities in traffic accidents, took more land, and resulted in a rise in congestion on the roads.

The nation responded by motorizing its police forces and ambulance services.

Willey and Rice concluded that during the fifteen years from the beginning of the Great War until the beginning of the Great Depression America underwent "a transformation of social habits" as a direct result of the widespread diffusion of the private automobile. Frederick Lewis Allen accused the automobile of accelerating the "revolution in manners and morals" underfoot in America in the nineteen-twenties.

Eventually, the automobile became another mundane feature of modern life, with the auto showroom, gasoline pump, and the garage becoming fixtures in American life.

The trolley pushed the city outward to the suburbs. The auto provided an outlet for the suburbanite to venture outward farther into the countryside. [1]

Manufacturers

All the major car companies have three roles: they design cars for the future, they build cars, and they sell them through network of locally-owned dealers. Until recently the car-makers built practically the entire car. In the 21st century, however, the makers build their own engines but purchase nearly all the other parts from independent parts companies, then assemble them. Several thousand parts companies now operate in the U.S.; the largest are Delco, Visteon, American Axle (as well as the tire makers). They employ more factory workers than the car makers do, typically at much lower wages. Blue collar workers at the Big Three (GM, Ford and Chrysler) are unionized and are paid on average $55 an hour (including benefits). Blue collar workers at the "transplants" in the U.S. (Toyota, Honda, Mercedes, etc.) are not unionized and are paid on average $40 an hour (including benefits. The automobile industry in Canada is integrated with the U.S. industry.

The Recession of 2008 saw auto sales plunged by 18% from 2007, to only 13.2 million units, with very steep declines at the end of the year as sales fell 36% in December. GM and Chrysler verged on bankruptcy. They were rescued, temporally, by loans from President George W. Bush in December, 2008, in order to avoid a major economic disaster that would cost the nation hundreds of thousands of jobs.

Many of the world's major auto companies have plants in the U.S., called "transplants." Ford started in 1910 to open factories across the world, and General Motors followed in the 1920s.

It is often difficult to tell if a car is a domestically or foreign produced vehicle simply by the name of the manufacturer. For example, in 2006 Japan-based manufacturer Toyota had 14 manufacturing plants in North America producing parts and cars such as the Camry, while American manufacture General Motors has operations in Mexico producing trucks such as the Silverado and Suburban for export to the United States.

Industry trends

The annual capacity of the industry is 17 million cars; sales in 2008 dropped to an annual rate of only 10 million vehicles made in the U.S. and Canada. All the automakers and their vast supplier network account for 2.3% of the U.S. economic output, down from 3.1% in 2006 and as much as 5% in the 1990s. Some 20% of the entire national manufacturing sector is still tied to the automobile industry. The transplants can make a profit when sales are at least 12 million; the Big Three when sales are at least 15 million.[1]

The "Big Three" (General Motors, Ford and Chrysler) have done poorly in recent years. They have lost most of the market to imports and "transplants" (cars made in U.S. factories owned by foreign makes). The first signs came when Volkswagen and Honda started importing cheap, well-made cars in the 1960s. Detroit convinced Congress to impose quotas, and the foreign companies responded by opening their own plants in the U.S.

The "transplants" are built in the South and are non-union. Facing steady financial losses, The Big Three have closed many factories and drastically cut employment, especially in Michigan. They are handicapped by union contracts which require them to "buy out" union workers when plants close, at a typical cost of $100,000 to $150,000 each. Health care and pension costs add $1500 to the cost of each vehicle made by the Big Three, and their wage levels are much higher than the transplants. Average annual wages for production workers at the Big Three were $67,480 in 2007, and $81,940 for skilled workers. GM spun off some of its divisions into independent companies, such as American Axle in 1995 and Delphi in 1999. Ford spun off Visteon in 2000. The spin-offs have shared Detroit's downturns, as have the U.S. owned plants in Canada.

Meanwhile the transplants have been growing. Led by Toyota, Nissan and Honda, by 2003 the transplants were producing more vehicles than the Big Three. The transplants built new factories and adding to the employment rolls in non-union plants in the South, especially Kentucky and Tennessee. The United Automobile Workers (UAW) has shrunk steadily since 1980, falling from 1.5 million members to 600,000.[2]

Financial crisis

In 2008 a series of damaging blows drove the "Big Three" (GM, Ford and Chrysler) to the verge of bankruptcy. Part of the cause was very high labor costs (much higher than the foreign plants in the U.S.), which prevents lower prices. The Big Three have far more retired workers than active workers, and the pension and medical costs for the retirees amount to $1500 a car. The transplants, by contras, are so new they have few retired workers.

The Big Three had in recent years stressed expensive, fuel-guzzling SUVs and large pickups. They were much more profitable than smaller, fuel-efficient cars. When gasoline prices shot past US$4 per gallon in 2008, Americans stopped buying the big cars, and the Big Three saw their sales plummet. The Financial Crisis of 2008 played a role as no one was willing to loan GM the money to buy Chrysler. Consumer credit has tightened and it became much harder for people with average or poor credit to obtain a bank loan to buy a car, so sales fell further. Stock prices fell as shareholders worried about bankruptcy; GM's shares fell to 1942 levels.

Intense debate in December 2008 focused on allowing bankruptcy or injecting billions more of federal aid in loans and buyouts; it would be in addition to a $25 billion loan Congress passed in September 2008 to assist in increasing fuel efficiency. The Democrats in Congress supported president Bush's proposal to sue the fuel-efficiency loans to help with the immediate problem. It passed the House but Senate Republicans broke with Bush and it failed. The opponents called for a bankruptcy that would allow GM to get out of its contracts to pay union members high wages, as well as generous pension sand medical benefits to retired workers. Bush then acted unilaterally and decided to lend GM and Chrysler in [Financial Crisis of 2008|TARP money]] on December 19. GM and Chrysler will got $13.4 billions in loans they can use to pay their suppliers.[3] GM can receive another $4 billion in February, but by then the Obama administration will be in charge, and it is emphasizing the need for a long-range solution.[4]

In addition to the Big Three hundreds of large suppliers of parts are in financial crisis as well; most would go under if the Big Three go bankrupt.

Auto sales were down again in December 2008, as the major companies (including the Big Three, Toyota and Honda) all reported sales declines from 2007 of about 30-32%.

Crisis worsens in 2009

Auto crisis

The automobile industry is in desperate crisis, with General Motors and Chrysler, and numerous parts suppliers, on the verge of bankruptcy. Ford is in better shape as are the "transplants" like Toyota and Honda that have factories in the U.S. If GM shuts down, however, many parts suppliers will also shut, forcing the end of most US auto production. Autos will still be imported from other countries, though at much higher prices. GM and Chrysler were given $17 billion TARP funds in December on condition they present a turnaround plan by Feb. 17, 2009. In its plan GM will ask for access to an additional $16.6 billion in federal aid; otherwise will run out of money by March 2009. GM also said it would close 14 U.S. plants, and cut 47,000 global hourly, salaried jobs. Bankruptcy, GM said, would cost the federal government $100 billion in losses, as well as the loss of 1.3 million jobs across the US, as plants and dealers close down operation.[5]

In March 2009 GM reported that its auditors have raised substantial doubts about its ability to continue as a going concern, citing recurring losses from operations, stockholders' deficit and an inability to generate enough cash to meet its obligations. GM has received $13.4 billion in federal loans, and the company is seeking a total of $30 billion from the government. During the past three years it has run up $82 billion in losses, including $30.9 billion in 2008. Bankruptcy appears likely.[6] The Obama Administration has apparently decided that bankruptcy would be a mistake, and will try to keep the Big Three in operation.

Equally serious is the plight of the parts makers--who actually do most of the factory work that goes into cars. "The failure of a few key suppliers could have brought the entire industry to its knees," said the president of the Original Equipment Suppliers Association, where a third of the membership reported that it would face severe financial distress in the first quarter. The government is giving $5 billion in aid to this sector.[7]

On March 29 President Obama forced the head of GM to resign, and on March 30 issued a do-or-die ultimatum for the struggling industry, demanding strict financial standards that the carmakers must meet to get more government aid and declaring that their industry must survive because it is "like no other, an emblem of the American spirit." He demanded that Chrysler form a partnership with the Italian automaker Fiat within 30 days. He did not threaten Ford, which has not asked for federal aid. He did not offer relief from the high mileage standards on which Detroit has consistently fallen behind Asian competitors. Obama asked Congress to offer cash subsidies for new car buyers, especially those who turn in old gas guzzlers (which will be scrapped). The stock market promptly plunged 3.6%.

In late April 2009 GM announced further downsizing that will reduce its American workforce to 38,000 union employees, compared with 395,000 at its peak in 1970.[8]

Bankruptcy for GM and Chrysler

Chrysler entered bankruptcy in April 2009, after losing $16.8 billion in 2008, and is expected to lose another $4.7 billion in 2009. It hopes to emerge quickly, with the old owners wiped out. The new owners will be Fiat of Italy, the UAW and the U.S. government.

GM enters bankruptcy in June 2009. After what is expected to be a short stay, bondholders will lose most of their investments and instead get 10% of the new stock. The new company will be 72% owned by the US government (along with the government of Canada), with the UAW health care trust (for retired workers) holding about 18% ownership. The US has already given GM $20 billion in loans; it will add another $30 billion, bringing its investment to $50 billion (in return it owns 70%). The new money will be used to keep GM operating in the US, Canada and Latin America. The unions have agreed to major wage concessions, so that wage rates will be similar to the transplants. It will be a much smaller company with fewer dealers and no long-term debt. Whether it will make a profit is unknown. GM is selling its European operations to a consortium from Canada and Russia, with funding from the German government.

Bankruptcy permits Chrysler and GM to shed over one fourth of the dealerships, and walk away from the money they owe the dealers. Once a dealer loses its status, it can sell other brands, or used cars, or go bankrupt. (The ex-dealers will no longer be able to handle repair work under warranty, an important part of their business.)
Ford appears to be solvent.

Bankruptcy in practice in 2009 means continued operation for Chrysler and GM. If it involves totally shutting down, then bankruptcy of the Big Three would be very expensive to the economy as a whole and the federal government. It would mean loss of 240,000 very high paying jobs at the Big Three, a loss of 980,000 high-paying jobs at the suppliers and local dealers, and 1.7 million jobs throughout the economy. It would cause a decline in personal income of $151 billion the first year, and $398 billion over three years. The federal, state and local governments would lose tax revenue and spend on welfare programs a total of $156 billion over three years.[9]

A bankruptcy of the Big Three would not quickly benefit foreign makers. The transplants would be severely hurt by the closing of parts companies like American Axle, Delco and Visteon they share with the Big Three, and their output would fall. There would be far fewer new cars for sale for years, and prices would soar. Eventually imports would come from abroad, but they would be much more expensive than current autos. It takes years to build new plants, and in the current financial crisis there is no funding available for risky multi-billion dollar manufacturing ventures.[10]

Chrysler

The new Chrysler emerged from bankruptcy in June 2009. The old debts are nearly all gone (except some money it owes the governments of the US and Canada). In terms of ownership of the stock, the UAW union's health care trust has 55%, which it will try to sell as soon as possible on the open market. the American and Canadian governments have 8% and 2% respectively; and Fiat of Italy has 20%. Fiat's stake will grow to 35% after Chryster pays off its government loans. The board of directors is more powerful and has nine members: three from Fiat, four named by the US Treasury, one by the Canadian government and one by the UAW. Actual control is held by Fiat.[11]

All Chrysler factories are now shut down and will reopen after it sells the huge inventory it holds in lots around the country(especially from the closed dealerships). In a year or so Chrysler will be making and selling Fiats.

Fuel efficiency

The U.S. Congress has set a complicated series of fuel efficiency standards that the Big Three complain they have a difficult time meeting. California, with over 10% of the market, has its own higher standards. In May 2009 the Obama Administration announced new goals that would set the 2016 target of 39 miles per gallon for cars, compared to 27.5 in 2008. For light trucks the 2016 target will be 30 mpg, compared to 22.5 in 2008. The required technology will cost about $1300 a car, but drivers will that will be offset by fuel savings of perhaps $2800 over the life of the car, depending on the price of gasoline. The Big Three claim they can meet the new standards. The Ford Fusion hybrid launched in 2009 gets over 40 mpg, and Ford had started producing the EcoBoost engine, which will raise fuel economy by 15% and lower greenhouse gas emissions by 15%. It expects to sell 750,000 cars a year in the US with the new engine. BMW plans to meet the standard by exporting more diesel cars and trucks to the U.S.

Total gasoline consumption in the U.S. rose from 6.5 million barrels a day in 1980, and reached 9.1 million in 2004 and 9.0 million in 2008.[12] There will be little change in the next decade as increased driving is matched by more fuel efficiency. For that reason the major oil companies see no need to build new refineries in the U.S. With the rapid growth of driving in China and India, however, new refineries will be needed there.

World history

Germany

Daimler-Benz is the industry's oldest firm, building automobiles since the late 1880s; its current structure dates from 1926. In 1998 it bought the American Chrysler, then sold out in 2007 at a heavy loss as it never integrated the new car in its line.

In the popular market, Opel and Volkswagen are most famous. Opel was a bicycle company that started making cars in 1898; General Motors bought it out in 1929, but the Nazi government took control and GM wrote off its entire investment. In 1948 GM returned and restored the Opel brand.

Volkswagen is dominant in the popular market; it purchased Audi in 1964. VW's most famous car was the small, beetle-shaped economical "people's car" with a rear-mounted, air-cooled engine. It was designed in the 1930s by Ferdinand Porsche upon order from Adolf Hitler, who was himself a car enthusiast. However production models appeared only after the war; until then only rich Germans had automobiles. By 1950 Volkswagen was the largest German automobile producer.[13]

Germany is famous for its upscale sedans. They are designed for high-speed cruising over the autobahns. They feature well-designed suspension systems that provide both a soft ride and good handling characteristics on winding country roads. Engines are designed for sustained high-speed operation, though in general they are weak on acceleration.

Daimler-Benz produces the upscale Mercedes-Benz, long a famous name in racing. BMW (founded 1916) and Porsche are major factors in the luxury market.[14] Porsche formed his own company, which today produces expensive, high-quality sports cars.[15]. In 2008 the Porsche company sought control of the much larger Volkswagen company; Porsche cornered the market for Volkswagen stock and made profits of tens of billions of Euros, while apparently gaining control of the bigger company.

Japan

Japan, with its large population squeezed into very high density cities with good public transit, has limited roadways that carry very heavy traffic. Hence most automobiles are small in terms of size and weight. Nissan began making trucks in 1914, and sold cars under the "Datsun" brand until it switched to "Nissan" in the 1980s. It opened its first U.S. plant in Tennessee in the early 1980s and a British plant in 1986. It is 44% owned by Renault of France. Honda, which began with motorcycles, emerged after World War II. Its luxury cars carry the "Acura" brand. Toyota began making cars in the 1930s and is now the world's largest producer. Its luxury models carry the "Lexus" brand. Toyota is famous for its innovative, quality-conscious management style, and its hybrid gas-electric vehicles, especially the Prius, which was launched in 1997. Other major companies include Subaru, Mitsubishi, and Mazda. Japan became the world's leading auto maker in 1980, the first year since 1905 that the United States had been outproduced by any other nation.

Britain

The auto industry developed late in Britain and for the first half of the 20th century the small output of British-owned companies focused on luxury and upscale models notably Rolls-Royce and later Bentley as well as Jaguar and Rover. The stress was on high quality hand-made craftsmanship, regardless of high cost.

Beginning 1925 William Morris, later Viscount Nuffield, began to mass produce small cars of modest power under the "M.G." nameplate. Morris modeled his methods after Henry Ford, and sought high volume production of inexpensive cars geared to the urban middle class. In 1953 M.G. merged with Austin to form the British Motor Corporation, the largest producer, which also produced the Austin, Austin-Healey, Morris, Riley, Wolseley. It added Jaguar in 1966. BMC specialized in small, economy sedans and sports cars, with 4 cylinder engines. It merged in 1968 with rival Leyland. Another rival was the Rootes group, with the brands Sunbeam, Talbot, Hillman, Singer, and Humber. [16]

Ford opened a plant as early as 1911 and soon had 40% of the British market. In 1931 Ford opened the largest auto plant in Europe near London. Ford eventually acquired Aston Martin, Jaguar and Land Rover. By 2008 it was selling off those divisions.[17] Rootes was taken over by Chrysler in the late 1960s and its brands phased out by the 1970s. The Chrysler operations were taken over by Peugeot in 1978. Nissan opened a plant in 1986.

After 1945 and the end of the Second World War, American and British firms dominated the European market. In 1950, of 523,000 cars produced in Britain, 398,000 were exported. By the late 1950s, however, the Germans were back, followed soon by the French and Italian producers, and Britain lost most of its continental market. By 1970 Japanese firms identified the British market as the first major European market to attack because of the relative weakness of the domestic car industry.[18]

When the domestic auto industry was largely nationalized in 1975, British Leyland was the holding company that controlled 40% of production. It was renamed Rover; it went bankrupt in 2005, ending the era of mass production by British makers. The Chinese purchased the MG brand, while Jaguar went first to Ford and now to TATA Motors.

The gentry who bought cars before 1939 found driving was easy on rural Britain’s smooth road surfaces in its generally mild weather. The rural roads are famously narrow and winding, so cars were small with stiff springs for good handling characteristics on them. High taxes on gasoline and crowded streets encouraged smaller, fuel-efficient cars in the cities.

Fuel

President Bush has urged car manufacturers to produce cars that can run on renewable fuels such as ethanol and biodiesel, to cut down on America's dependence on foreign oil. Several manufacturers are also developing electric cars, hybrid cars and plug in hybrids.

Racing

Automobile racing is quite popular world wide, with several variations including:

Pelfrey, William. Billy, Alfred, and General Motors: The Story of Two Unique Men, a Legendary Company, and a Remarkable Time in American History (2006), on Billy Durant and Alfred Sloan excerpt and text search

Rae, John B.; American Automobile Manufacturers: The First Forty Years (1959) online edition

Setright, L.J.K. Drive On!: A Social History of the Motor Car (2004), international overview; excerpt and text search

Watts, Steven. The People's Tycoon: Henry Ford and the American Century (2005), major biography

↑ GM and Chrysler will receive $4 billion each when they sign the loan agreements with the Treasury. GM will have access to an addition $5.4 billion on Jan. 16 and another $4 billion on Feb. 17 provided that Congress has released the remaining $350 billion for the Treasury’s TARP rescue program.